Gold suffers second down day after forecast cut

SAN FRANCISCO (MarketWatch) — Gold futures suffered a loss on Wednesday for a second day in a row, with investors discouraged by a bearish call from yet another investment bank.

“The metal is out of favor with most traders and major brokerages,” said Jonathan Citrin, founder and executive chairman of CitrinGroup. “Recent negative comments for the metal, along with positive expectations for global growth this year, have kept most gold bugs on the sideline.”

Gold for February delivery
US:GCG4
fell $3.20, or 0.3%, to settle at $1,238.60 an ounce on the Comex division of the New York Mercantile Exchange, its lowest close in a week.

March silver
US:SIH4
fell 3 cents, or 0.2%, to $19.84 an ounce after Tuesday’s 2.1% drop.

Morgan Stanley cut its gold targets for the next two years, with the bank’s analysts saying strength in stocks as well as regulatory pressures will hurt prices. The bank reduced its 2014 average gold-price forecast by 11.6% to $1,160 an ounce and dropped its 2015 forecast average by 12.5% to $1,138 an ounce.

Meanwhile, seasonal demand for gold related to the Chinese Lunar New Year has been good, said Jeffrey Wright, managing director at H.C. Wainwright, but the demand has not been close to record levels in the last couple of years.

“Physical gold currently has about a $15 premium to the spot price to take delivery, compared with a smaller premium elsewhere, he said. In the short term, the next 3 to 4 weeks of demand from China will “temper downward pressure on gold but afterward, without any additional catalysts, gold will begin to slide back to late 2013 levels.”

Gold on Tuesday gave back a big chunk of the gains that brought it to five-week highs on Friday as the dollar
DXY, +0.51%
strengthened and as bearish forecasts for the year took their toll. Also weighing on the precious metal Tuesday, the International Monetary Fund raised its global growth forecast for the first time in almost two years.

The economic data calendar has been sparse this week due to Monday’s Martin Luther King Jr. holiday. On Thursday, the market will see data on weekly jobless claims, the Markit “flash” PMI, existing home sales and leading indicators.

The market also awaits the Jan. 28-29 meeting of the U.S. central bank’s Federal Open Market Committee. At its last meeting in December, the Fed announced that it would start to taper its bond-buying program in January to $75 billion from $85 billion a month.

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Ahead of the meeting, investors have expected continued quantitative-easing tapering by the Fed, analysts at Sharps Pixley said in a note Wednesday.

But “the flows into gold have become more positive this year,” they said, noting that speculators have increased their net long gold combined positions by 7.6% during the week of Jan. 14, “helped by speculators establishing fresh long positions.”

Last Friday, the SPDR Gold Trust
GLD, -0.76%
the largest gold exchange-traded fund, saw the largest percentage increase in holdings since November 2011, Sharps Pixley analysts said, and the U.S. Mint January gold coin sales will likely see the highest monthly jump since April 2013.

Still, “Barclay’s economists expect the Fed to focus a bit more on inflation development and expectations in 2014, which should also draw gold investors’ attentions,” they said.

Back on Comex Wednesday, platinum for April delivery
US:PLJ4
closed up $8.90, or 0.6%, at $1,462.40 an ounce ahead of planned labor strikes at platinum mines in South Africa. March palladium
US:PAH4
added 80 cents, or 0.1%, to $748.85 an ounce.

High-grade copper
US:HGH4
for March delivery slipped by 1.4 cents, or 0.4%, to $3.34 a pound.

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